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In order to express our gratitude and appreciation to all of the healthcare
workers and first responders helping our communities, we want to extend
a discount to each of them and their families on any estate planning services
to help them protect and care for their own loved ones.

About time, too: The average cost for
nursing home care is now more than $50,000 a year and climbing, according to AARP,
and because costs tend to vary widely across the nation, that may be a
conservative estimate for your neck of the woods.

Today only a fraction of people who need to pay for extended care actually
buy any long term care (LTC) insurance, says AARP. But thanks in part
to a pension law that was passed in 2006, which will go into effect next
January, people who have built up equity in a life insurance or annuity
policy and don’t feel they need it anymore (since their children
are grown and fending for themselves, for instance), will soon be able
to trade in their existing policies for LTC insurance and eliminate taxes
they’d otherwise have to pay to realize the cash benefits of their
life and annuity programs.

“One of the existing rules under the Pension Protection Act is, you
can exchange a life insurance or an annuity policy for a single-premium
long term care policy on a tax-free basis,” says Certified Financial
Planner Michael E. Kitces, director of financial planning with the Pinnacle
Advisory Group in Columbia, Md., and co-author of The Annuity Advisor.

According to Kitces, the following is a common client refrain: “‘There’s
a policy I’ve been paying on for 25 years while I’ve raised
my family. Now, the kids are out of the house, my spouse is working, and
if I go after my cash value, the proceeds are taxed as regular income.'”

Turn Life Insurance into LTC and Save
Soon, individuals will be able to use the cash value they have accumulated to
purchase LTC coverage, and it’ll be “a tax-free exchange.” Insurers are still
in the process of shaping their LTC strategies in response to the pension
law. “This is what’s coming down the pike,” says Kitces,
who expects insurance companies to begin marketing the programs within
the next several months.

LTC insurance isn’t cheap, with premiums that can range from $1,000
to $8,000 a year depending on how old you are when you buy it, where you
live and what kind of features you’re after.

In Tennessee, for instance, the premium for a policy that would cover $130
a day for three years of care once
deductibles are satisfied would cost about $810 a year including inflation protection
at age 50, whereas at 75 the same policy costs $4,500 a year, according
to the Tennessee Health Care Association.

How do you make the new law work for you?

For one thing, you’d be buying a LTC program that charges a one-time,
instead of annual, fee, Kitces says, and you’d possibly pay a single
lump-sum premium of $150,000 for life. And you’d need to have enough
cash value. “I suspect we’ll see LTC policy options pricing
anywhere from $50,000 to $200,000, depending on the benefits chosen,”
says Kitces.

Some other factors to consider if you’re wondering whether this exchange
is right for you:
Do you have a need for LTC coverage? If you’re not eligible for
Medicaid, and don’t have sufficient assets to fund nursing home
care and other forms of long-term medical assistance yourself, the answer
is most likely a long-term care health event would have a severely adverse
financial impact on you and your family.
Do you have an existing life insurance or annuity program you don’t
need anymore? You want to be very sure you have sufficient retirement
proceeds, be it pensions or 401(k) money or personal investments, to forgo
the equity in your life or annuity policy.
Keep in mind the nature of what you are buying, especially with a single
premium policy that lasts as long as you live. Kitces notes that if you
die before the policy is used, chances are no one will inherit that money.
On the other hand, if your family tends to live well into their late 80s
or 90s, and needs long term care, this is probably going to be “a
very good deal.”
Not everyone will qualify. As with life insurance, it will be difficult,
if not impossible, to purchase LTC coverage with a severe pre-existing
condition like late-stage cancer, says Kitces.
Source: Janet Aschkenasy at
www.marketstreet.com

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